German Chancellor Friedrich Merz visits facilities of Siemens Energy in Hangzhou, China, on Feb. 26.Andres Martinez Casares/The Associated Press
Europe is in a foul mood. Having barely survived the energy crisis inflicted on it by Russia’s full-scale invasion of Ukraine in 2022, it is hurtling into another one. The difference today is that Europe will have to pay for the military recklessness of an ally – Donald Trump’s United States – not Russia’s.
On Friday, the sixth full day of the relentless American and Israeli attacks on Iran, oil and gas prices continued to escalate. By Friday afternoon, Brent crude hit US$91 a barrel; in December, the price was less than US$60.
But oil isn’t the European Union’s real worry; the real worry is natural gas, whose prices are galloping ahead at a frightful pace and rattling industrial and residential consumers everywhere.
The EU produces very little of its own gas; almost all of what it uses is imported in the form of pipeline gas from afar and liquefied natural gas (LNG), which arrives in ships. The benchmark Dutch gas futures price, known as TTF, traded Friday at €54 a megawatt/hour, up from about €30 just before the war started and as low as €25 in December. Let’s call it a double in three months.
Opinion: The West’s delicate, troubling dance with Trump on Iran
A map of the Persian Gulf gives you a good idea what is driving the energy price hike. Twenty per cent or more of the world’s oil and LNG passes through the Strait of Hormuz, the narrow channel that separates the Gulf from the Indian Ocean. Hormuz is effectively blocked and oil refineries and LNG plants nearby are closing because the output cannot be loaded onto ships.
As a new energy crisis lands four years after the last one, the country with the most to lose is Germany, the EU’s biggest economy and industrial force. Germany had nothing to do with the Israeli and U.S. attacks on Iran, but its energy policy for the past 25 years has been illogical to the point of madness. Berlin could have insulated itself to a great degree from sporadic but inevitable energy catastrophes. Instead, the country sabotaged itself.
The roots of its energy dysfunction date back to the late Soviet era, when Germany was emerging as an industrial powerhouse. Factories that make cars, chemicals, aircraft, machinery, steel, aluminum, glass and cement are energy intensive and live or die on prices. At the time, the Soviets offered scads of cheap gas and Germany was an eager buyer, even though U.S. presidents as far back as Ronald Reagan, and later both Bushes, warned Berlin that handing the Kremlin economic leverage over Germany in particular, and Western Europe in general, was boneheaded.
But never mind. Germany became utterly addicted to cheap, and apparently reliable Soviet (later Russian) gas and dressed up the energy purchases as warm diplomatic overtures to Eastern Europe and Russia. The theory was that commercial partners do not harm one other.
In the first two decades of this century, the German chancellors Gerhard Schröder and Angela Merkel doubled up on the Russian-supply model, then doubled up again by approving the Nord Stream gas pipelines that connected Russia directly to Germany. Incredibly, Germany granted the construction permits for the second Nord Stream pipeline in 2018, four years after Russia annexed Crimea from Ukraine.
Then Russia invaded Ukraine and the Kremlin shut down Nord Stream gas deliveries to Germany. Half a year after the start of the invasion, the pipelines were blown up, the culprits unknown.
Trump hosts Germany’s Merz against backdrop of Iran war and tariff threats
At that point, Germany was at the mercy of far more expensive LNG from the U.S., Norway and the Gulf, mostly Qatar, though Europe continued to buy some LNG from Russia even as it was demolishing Ukraine. Germany paid up big time. It made a bad situation worse by not diversifying its energy supply as fast as it could. In fact, it did the reverse and actually narrowed its supply options.
Even as atrocious energy prices pushed its economy into recession, Berlin, incredibly, closed the last of its once vast fleet of nuclear power plants under pressure from the Green Party and other anti-nuke forces. It also shut most of its coal-fired generating plants. As if that weren’t foolish enough, it retained the ban on gas fracking − the extraction of the fuel from shale rock that, in recent decades, turned the U.S. into an energy superpower and major LNG exporter.
Before the Israeli and U.S. attacks on Iran and the prospect of other countries being dragged into the war, energy prices were coming down and the German GDP was rising again, though slowly. Then – wham! – its main LNG supplier, the U.S., with Israel by its side, turned the world’s most important source of hydrocarbons into a war zone. Iran is retaliating by firing drones and missiles at ships and energy facilities in the Gulf to turn up the economic heat on its enemies.
After Russia invaded Ukraine, Germany not only made itself beholden to the U.S. for most of its LNG, whose prices are soaring; it made itself beholden to the country whose war machine is throttling supplies from the Gulf. Germany can blame itself for pursuing an energy policy that gave it few substitutes for imported LNG. It set itself up to feel the full force of the new energy shock wave.